About four years after losing a legal battle at the World Trade Organization over liquor, Japan last month evened the score with Canada by winning a different legal battle there — over autos.
But Japanese trade officials are in no mood yet to crack open the champagne and toot their own horns.
What’s the matter with them?
The officials are not convinced yet that changes in Ottawa’s auto policy as a result of the WTO decision will be enough to satisfy them and Japanese automakers.
The WTO, the Geneva-based watchdog on international commerce, handed down a final ruling at the end of last month upholding complaints from Japan, as well as the European Union, that Canada discriminated against auto imports from them.
At issue was the U.S.-Canada Auto Pact, a 35-year-old agreement under which Ottawa has imported U.S. vehicles duty-free while charging an import tariff of about 6 percent on most Japanese and European cars. This has made it impossible for Japanese and European automakers to compete with their American rivals on a level playing-field in the Canadian market.
The recent WTO verdict follows a final ruling by the WTO in 1996 that upheld complaints from Canada, as well as the EU and the U.S., that Japan unfairly taxed liquor imports to protect domestic brewers of “shochu,” a Japanese liquor, from foreign competition.
Deep distrust and anger prompted Japan to take the auto case to the WTO in July 1998.
During the annual meeting of the Asia-Pacific Economic Cooperation forum in Vancouver in November 1997, then-Prime Minister Ryutaro Hashimoto and Mitsuo Horiuchi, then international trade and industry minister, asked their Canadian counterparts to eliminate the tariff on Japanese vehicles.
At that time, Canada pledged to review its auto-tariff, giving full consideration to the Japanese request. But in June 1998, Ottawa abruptly told Tokyo it would stop the review work, apparently because it wanted to use a possible tariff elimination or reduction as a bargaining chip in a new round of global trade liberalization negotiations.
The new round was originally supposed to be launched under the WTO auspices earlier this year, but it has not been inaugurated yet due to sharp differences among the 135 WTO members over a specific agenda.
Now that the WTO has issued a final verdict on the Canadian auto policy, Ottawa is obliged under the WTO rules to rectify the controversial policy within three months — or by the end of August. The question now is how Ottawa will bring its auto-tariff regime into line with the ruling.
Theoretically, Ottawa may have three options: imposing an import tariff rate of about 6 percent on U.S. autos, as it currently does on Japanese and European ones; eliminating a tariff on Japanese and European autos; or setting an equal new tariff rate — of less than 6 percent perhaps — for all foreign autos.
But Ottawa has so far not indicated how it will change its auto-tariff.
On June 1, only the day after the WTO’s appellate body issued a final verdict on the auto row, Robert G. Wright, Canada’s deputy minister for international trade, met with Hisamitsu Arai, the vice minister for external affairs at the Ministry of International Trade and Industry, in Tokyo.
Perhaps because of the sensitivity of the issue, the two top trade officials agreed not to make public the contents of their conversations.
But according to a source at MITI who participated in the meeting, Wright told Arai that although Canada fully understands its obligation to implement the WTO recommendations, it has not decided yet how it will do so.
Arai pushed Wright to remove a tariff on Japanese, as well as European, autos to liberalize the Canadian auto trade. Wright replied that it is a matter that would require “political” judgment by the Canadian foreign and trade minister, the source said.
Wright was also quoted as telling Arai that although the Japanese position is “no surprise to hear,” the Canadian government is facing strong pressure from General Motors, Ford Motor and DaimlerChrysler.
Although Wright did not specify what these automakers are pressing his government to do, they probably would not want to see any import tariff on their products. Neither would they want to lose a competitive advantage they currently hold over their Japanese and European rivals.
According to the MITI source, Arai sympathized with Wright, saying Japan does not want to see a “tit-for-tat trade war” between Canada and the U.S. At the same time the top Japanese trade negotiator reminded his Canadian counterpart that the Japanese government also faces pressure from Toyota Motor and Honda Motor to seek a zero tariff rate from Ottawa.